Wednesday, 4 September 2013

After a decade of anticipation, $130 billion deal it is.

After a decade of anticipation, Lowell C. McAdam, Chairman
and CEO of Verizon Communications Inc. discussed their definitive agreement
with Vodafone to acquire 45% stake in Verizon Wireless. After the transaction
closes, Verizon will be the sole owner of Verizon Wireless. This is really a
natural next step for Verizon; full ownership of Wireless asset marks a major
milestone for their company.

“I think there is no better way to deploy our capital than
to invest in an asset that today generates more than $80 billion in annual
revenue, provides 50% service margin and generates significant cash flows and
is uniquely positioned for future growth and profitability’ said Mr. Lowell C.
McAdam.

Verizon Communications’ strategic investment in Verizon
Wireless over the last 13 years has been a cornerstone of their business
strategy. Their focus on customers, network reliability and new technology have
been the ingredients of a successful partnership with Vodafone making it the
largest and most profitable Wireless provider in the United States.

The timing of this transaction is right from both a
strategic and financial perspective and it offers substantial, commercial and
operating benefits. Sole ownership of Verizon Wireless significantly improves their
financial and growth profile and enhances value across all Verizon platforms.

Verizon Communications will use a balanced mix of cash and
common stock to fund the transaction. As they said last January, “We have the
capacity to execute the transaction; it is designed to be self-funding as the
incremental free cash flow we will acquire exceeds incremental after-tax
interest expense and dividends”. Importantly, there is no business execution
risk, because they manage and control the partnership today. This transaction
is not based on synergies.

Upon closing, the transaction is expected to be immediately
accretive to earnings per share by approximately 10% without any one-time
adjustments and accretive to free cash flow. It will also provide access to all
of the Wireless cash flows. To put this into perspective, the partnership paid
special distribution of $25.5 billion since January of 2012 of which 45% went
to Vodafone. On an annual basis, this increases Verizon's dividend 6 cents per
share from $2.06 per share to $2.12 per share.

Lowell further mentioned that their growth strategy has
three basic elements: Connectivity, Platforms and Solutions. They are very
bullish on the growth outlook for the U.S. wireless marketplace.

The United States has one of the strongest economies in the
world, a good competitive framework for wireless and still has lower
penetration rates compared with other parts of the world. There is still a lot
of headroom in core wireless connectivity with 64% penetration of smartphones. Verizon
still has about 30 million basic phones in their postpaid connection space and
also important to mention that about one-third of Verizon’s postpaid connections
are 4G LTE.

They already operate Verizon Wireless and should continue to
deliver an outstanding customer experience in terms of Network, Reliability and
Quality.